New Delhi: India’s merchandise exports declined for the seventh month in a row in April on weak demand from developed countries, where consumers and businesses are cutting spending in the midst of one of the worst recessions ever.
The ministry of commerce and industry said on Monday that exports in April fell by 33.2% on an annual basis to $10.7 billion (Rs50,290 crore today). They had dropped 33% in March as well.
Positive take: Commerce and industry minister Anand Sharma has said even a flat export growth this year would be an achievement. Pankaj Nangia / Bloomberg
Exports contribute to 16% of India’s gross domestic product, low in comparison with other regional economies such as China.
Such a low dependence on foreign demand is one reason why India’s economy could be stabilizing earlier than more export-oriented economies. The government had said on Friday that output grew 5.8% in the fourth quarter of 2009-10 and 6.7% for the entire fiscal year, beating most estimates.
Imports fell faster than exports in April, by 36.6%, raising hopes that India’s trade deficit will be contained and add strength to the rupee.
Imports also declined for the sixth successive month in April by 36.6% to $15.7 billion. While oil imports fell by 58.5% to $3.6 billion due to lower crude oil prices, non-oil imports declined 24.6% to $12.1 billion as a slower economy lowered domestic demand for industrial inputs and machines for new factories.
India’s new commerce and industry minister Anand Sharma, after taking charge on Friday, had said he expects export growth to be flat this fiscal year, which he described as an achievement given that global trade is projected to contract by 9-11% in 2009. Sharma also said more incentives for exporters will be announced in the Union budget that is expected in July and the foreign trade policy scheduled for August.
The decline in exports is likely to continue until September, India’s trade secretary Gopal K. Pillai had said on 13 April. Falling overseas sales may cost India about 10 million jobs, according to estimates from the Federation of Indian Export Organisations (Fieo), a lobby group.
“The April foreign trade data serves as a painful reminder that the global turmoil is likely still hurting the Indian economy. With major economic powers such as the US and Europe still deep in recession, international trade remains subdued. It is difficult for India to find export markets, as only a handful of economies around the world manage to expand during the difficult times. An annual contraction in exports is inevitable for India,” said Sherman Chan, economist with Moody’s Economy.com.
The trade deficit in April increased to $5 billion compared with $4 billion in March, even though it is far lower than the peak of $13 billion in August.
Chan said that the sharper decline in imports has helped contain the trade deficit. “Lower global oil prices compared to a year ago have certainly played a role in keeping overall import payments in check. However, the economic slowdown has also likely depressed India’s appetite for imports. The moderation in both inbound and outbound shipments will drag on the performance of various business sectors from trade to transport,” he added.
Imports also declined for the sixth successive month in April by 36.6% to $15.7 billion. Sandeep Bhatnagar / Mint
Fieo director general Ajay Sahai is, however, optimistic that the sharp decline in exports will end by July. “Looking at the orders coming to India, we expect the decline in exports will be arrested in next two months and we will have a positive growth starting from September,” he said.
However, Sahai maintains that fresh incentives for the exports sector are needed despite this.
“If rupee continues to appreciate, it will have a dent on the competitiveness of our exports. The government needs to take both fiscal and non-fiscal measures,” he added. The commerce and industry minister is scheduled to meet exporters on 3 June.
The rupee closed at an eight-month high on Monday at 46.95 a dollar, as local share purchases by foreign funds in May exceeded sales by the most in 19 months.
Goldman Sachs, in a report released on Monday, said that it expects the rupee to appreciate further as the stable government and relatively resilient domestic demand become key catalysts for foreign inflows. It also expects the basic balance of payments to turn positive in the current fiscal year due to a narrower trade deficit.
Bloomberg contributed to this story.